3rd Quarter & 9 Mths Results

Sun Life Fin.Services of Canada Inc 2 November 2000 SUN LIFE FINANCIAL OF CANADA DECLARES FIRST POST-IPO QUARTERLY SHAREHOLDER DIVIDEND (TORONTO, November 1, 2000) - The Board of Directors of Sun Life Financial Services of Canada Inc. (the Company) today declared a quarterly shareholder dividend of $0.12 per share on common shares of the Company, payable December 31, 2000 to shareholders of record at the close of business on November 13, 2000. This is the first shareholder dividend declared by Sun Life Financial of Canada since completing its demutualization process and becoming a public company on March 23, 2000. Sun Life Financial Services of Canada Inc. is the publicly held parent company of Sun Life Assurance Company of Canada. Tracing its roots back to 1871, Sun Life Financial of Canada has grown to become a leading international provider of financial services with total assets under management of $345 billion at September 30, 2000. The Sun Life Financial group of companies provide a wide range of savings, retirement, pension, and life and health insurance products and services to individuals and corporate customers in Canada, the United States, the United Kingdom, Hong Kong, the Philippines, Japan, Indonesia, India, Bermuda and Chile. Sun Life Financial of Canada Services of Canada Inc. trades on the Toronto (TSE), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol 'SLC', and on the London Stock Exchange (LSE) under the ticker symbol 'SFC'. NOTE TO EDITORS: All figures shown in Canadian dollars. Media contacts: Audrey Gouskos Francine Cleroux (416) 204-8155 (514) 866-2561 Investor Relations contact: Thomas Rice (416) 204-8163 Web site: www.sunlife.com SUN LIFE FINANCIAL OF CANADA REPORTS RECORD SHAREHOLDER EARNINGS OF $203 MILLION FOR THIRD QUARTER, UP 38 PER CENT $0.48 PER SHARE Solid Momentum In Core Businesses HIGHLIGHTS AND YEAR-OVER-YEAR COMPARISONS: - Shareholder net income increased to $203 million, up 38 per cent relative to adjusted 1999 third quarter performance of $147 million. - Earnings per share were $0.48, up 26 per cent from $0.38. - Total assets under management grew by 30 per cent to $345 billion. Revenue rose by 16 per cent to $4.3 billion. - Shareholder return on equity was 12.8 per cent, up from 10.1 per cent. - First post-IPO quarterly shareholder dividend declaration of $0.12 per share. (TORONTO - November 1, 2000) Sun Life Financial of Canada Services of Canada Inc. (the Company) today reported shareholder net income of $203 million for the quarter ending September 30, 2000, an increase of 38 per cent over the $147 million, on an adjusted pro forma basis, earned in the same period in 1999. Earnings per share of $0.48 were up 26 per cent from the $0.38 per share earned a year ago. For the first nine months of 2000, pro forma net income to shareholders totalled $581 million, an increase of 17 per cent over adjusted pro forma net income to shareholders of $495 million recorded for the first nine months of 1999. Earnings Summary (in millions, except per share amounts) Quarterly Nine Month Results Results 3Q'00 2Q'00 3Q'99 2000 1999 Shareholder Net Income* 203 197 147 581 495 Total Net Income 202 193 170 592 220 Earnings Per Share* 0.48 0.47 0.38 1.40 1.24 Average Shares Outstanding for Purposes of EPS 421.7 421.0 400.1 414.3 400.1 Calculation *Periods prior to 2Q'00 are on an adjusted pro forma basis 'We are pleased to report continuing progress in growing the earnings power of Sun Life Financial of Canada,' said Donald A. Stewart, Chairman and Chief Executive Officer. 'The record earnings achieved in the third quarter are the cumulative result of continuing revenue growth as well as enhanced profitability in both our Canadian and U.S. operations. This successful marketing and financial performance provides an appropriate backdrop for the Board's declaration of a shareholder dividend of $0.12 per share - - the first shareholder dividend to be paid since Sun Life's IPO last March.' FINANCIAL REVIEW Assets under management showed continued growth momentum in the third quarter despite challenging conditions in international equity markets, including both the U.S. and Canada. At September 30, 2000, assets under management were $345 billion, an $80 billion, or 30 per cent, increase relative to the $265 billion recorded at September 30, 1999. Assets under management were also up relative to the end of the second quarter showing growth of 4.5 per cent, or 18 per cent annualized, relative to the $330 billion recorded at June 30, 2000. These increases reflect the continuing market share gains achieved in the Company's wealth management business. Total revenue in the third quarter was $4.3 billion, an increase of $593 million, or 16 per cent, as compared to the $3.7 billion recorded in the quarter ending September 30, 1999. An important contributor to this growth was continued strong performance in the Company's fee income businesses, primarily wealth management. Fee income increased 29 per cent to $868 million compared to $672 million for last year's third quarter and up 7 per cent compared to the $812 million recorded in the second quarter of 2000. Annuity premiums showed increases of $170 million over the second quarter and an increase of $384 million over the third quarter of 1999 driven by the sale of medium term notes. Earnings attributable to shareholders for the third quarter were $203 million, up from $197 million earned in the second quarter of 2000. Third quarter results included a $19 million provision relative to a specific asset. Earnings per share were $0.48 for the third quarter compared to $0.47 in the second quarter of 2000. This compares favourably with the adjusted pro forma results for the third quarter of 1999 of $147 million or $0.38 per share. Return on equity for the third quarter was 12.8 per cent, up from the 10.1 per cent recorded for the third quarter of 1999, and reflects a modest decline relative to the 12.9 per cent in the second quarter of 2000. Commenting on the Company's advances in profitability, Paul Derksen, Executive Vice-President and Chief Financial Officer said, 'The strong improvement in year-over-year return on equity demonstrates that our strategies for improving bottom line profitability are producing their intended results. This progress, coupled with our continued success in growing top line revenues across key business segments, had the combined effect of producing record earnings for the quarter.' On a year-to-date basis, revenues were $12.2 billion compared to $10.9 billion in 1999, while shareholder earnings were $581 million compared to $495 million calculated on an adjusted pro forma basis. In the discussion below, earnings are stated on an adjusted pro forma basis. Adjustments reflect the exclusion of unusual items, which occurred in 1999, including provisions of $326 million for pension redress in the Company's U.K. operations and losses in discontinued reinsurance operations of $38 million on a year-to-date basis to the end of the third quarter. There were no adjustments for pension redress in the third quarter of 1999, and discontinued reinsurance operations had earnings of $1 million for the quarter. No adjustments have been made to results in 2000. Pro forma earnings reflect the impact of the demutualization for the full reporting periods. Differences between total net income and net income attributable to shareholders in the second and third quarters of 2000 represent losses attributable to participating policyholders. PERFORMANCE BY COUNTRY 'The third quarter saw solid performances across our North American operations,' observed C. James Prieur, President and Chief Operating Officer. Commenting on the returns of individual business units, Mr. Prieur added, 'We achieved continued improvement in core earnings as our variable annuity, retirement, and group businesses provided healthy returns. The quarter's results also benefited from a strong performance by MFS which again displayed notable strength, even relative to the impressive results achieved in the second quarter.' Canada Quarterly Nine Month Results Results 3Q'00 2Q'00 3Q'99 2000 1999 Group Retirement Services 9 8 10 30 26 Spectrum and Other 8 9 13 32 35 Individual Life 3 4 12 6 29 Group Life and Health 18 12 5 41 14 Investment Portfolio 7 9 3 13 11 Total Canada 45 42 43 122 115 Canadian operations earned $45 million in the third quarter, an increase of $2 million, or 5 per cent, as compared with the $43 million earned in the third quarter a year ago. Compared with the $42 million earned in the second quarter of 2000, earnings were up $3 million, or 7 per cent. - Group Life and Health earnings were key to this picture of enhanced profitability as improved pricing in long-term disability as well as effective claims management produced a $13 million, or 260 per cent increase in earnings as compared with last year's performance. - Group Retirement Services earned $9 million in the quarter, a decline of $1 million, or 10 per cent relative to the third quarter in 1999. Top line growth showed an impressive increase with fees rising to $32 million, an increase of 25 per cent as compared with 1999 on a year- to-date basis. - Spectrum and Other earned $8 million in the third quarter of this year, a decline of $5 million, or 39 per cent, as compared with the $13 million earned in the third quarter of 1999. This decrease was primarily the result of the sale of portions of Sun Life Trust. Spectrum earned $7 million in the quarter, representing a 75 per cent increase relative to the $4 million earned in 1999's third quarter. - Individual Life earned $3 million in the third quarter as new business strain depressed earnings as compared with the $12 million earned in the third quarter of 1999. In interpreting this decline in reported current period earnings, it is important to note that sales were up by 19 per cent relative to the same period a year ago, reflecting strong sales in the Universal Life product. United States Insurance Operations Quarterly Nine Month Results Results 3Q'00 2Q'00 3Q'99 2000 1999 Retirement Products and Services 29 14 15 58 48 Individual Life 13 20 (17) 54 20 Group Life and Health 7 6 - 13 - Investment Portfolio 14 18 15 61 39 Total United States 63 58 13 186 107 U.S. Insurance Operations earned $63 million in the third quarter, a strong performance as compared with the $13 million earned in the third quarter of 1999. An increase of $5 million, or 8.6 per cent, was achieved as compared with the $58 million earned in the second quarter of 2000. - Retirement Products and Services led the way for U.S. operations' strong third quarter performance with earnings of $29 million, an increase of $14 million, or 93 per cent. This enhanced performance resulted from the strong market reception received by new product innovations in the Regatta variable annuity product line. Fees on variable annuities have risen by $29 million, or 36 per cent, over the past year reflecting the robust underlying growth in assets. - Individual Life earned $13 million in the third quarter, an increase of $30 million as compared with the third quarter of 1999 when an after- tax charge of $22 million related to market conduct litigation had a significant negative impact on earnings. - Group Life and Health earned $7 million in the quarter as price increases in the stop-loss product line instituted in the latter half of 1999, as well as improved claims management in long-term disability, contributed to a marked improvement in profitability. - Earnings from the Investment Portfolio were modestly lower as prior periods' returns had enjoyed stronger contributions from venture capital gains. MFS Investment Management Quarterly Nine Month Results Results 3Q'00 2Q'00 3Q'99 2000 1999 Total MFS 72 62 49 196 131 MFS's earnings in the third quarter represented a new record at $72 million extending their string of consecutive earnings increases to seven quarters. The previous record of $62 million achieved in the second quarter was surpassed by $10 million, or 16 per cent. As compared to last year's third quarter, earnings increased by $23 million, or 47 per cent. - MFS continues to capture additional market share, and this growth has been the primary driver of its strong earnings performance. The expansion of market share achieved in the third quarter was particularly gratifying given the challenging conditions experienced in international capital markets during that time period. Start-up investment costs associated with Sun Life's entry into Japan added $5 million in expense to third quarter results. - Net sales of mutual and managed funds were $8.3 billion in the third quarter, an increase of $0.4 billion, or 5 per cent, as compared to $7.9 billion in the second quarter. This was an increase of $4.9 billion, or 144 per cent, as compared to $3.4 billion in the third quarter of 1999. United Kingdom Quarterly Nine Month Results Results 3Q'00 2Q'00 3Q'99 2000 1999 Total U.K. 32 33 32 82 106 Earnings for the U.K. in the third quarter were $32 million, $1 million lower than the $33 million earned in the second quarter of 2000, and equal to the $32 million in the third quarter of 1999. - Third quarter earnings were negatively impacted by the expenses of the ongoing U.K. restructuring program. - The U.K.'s restructuring program accomplished all of its major milestones in the third quarter with the successful transition to a new back office system completed subsequent to the third quarter on October 23rd. Asia Quarterly Nine Month Results Results 3Q'00 2Q'00 3Q'99 2000 1999 Total Asia 9 5 5 21 33 Earnings for Asia in the third quarter were $9 million, an increase of $4 million, or 80 per cent, compared to the $5 million earned in the second quarter of 2000, and an increase of $4 million, or 80 per cent, compared to $5 million in the third quarter of 1999. - The Company continues to view the long-term potential of the Asian market as an important area for future growth prospects and current period earnings reflect the financial impact of continuing investments in this area. - In the Philippines, where Sun Life has an established market position, earnings were $8 million, comprising a substantial majority of earnings for the entire Asian operations. MARKETING AND CORPORATE HIGHLIGHTS - Strong U.S. annuity sales up 37 per cent from the second quarter of 2000, and 36 per cent year-to-date over the comparable period in 1999. - Record-breaking level of assets under management achieved by MFS. - Sun Life Financial of Canada announces a dividend per common share of $0.12 payable to shareholders of record (November 13, 2000). - Sun Life Financial (ticker symbol: 'SLC') was added to leading international and Canadian stock market indexes, including the S&P Global 1200, S&P/TSE 60, TSE 100 and TSE 300 Composite Index. SUN LIFE FINANCIAL OF CANADA With significant operations in Canada, the United States, the United Kingdom and Asia for over a century and with a growing range of businesses and offices in 13 key markets around the world, Sun Life Financial of Canada is a global force in the international financial services industry today. Sun Life Financial of Canada Services of Canada Inc. is the publicly held parent company of Sun Life Assurance Company of Canada. Tracing its roots back to 1871, Sun Life Financial of Canada has grown to become a leading international provider of financial services with total assets under management of $345 billion (at September 30, 2000). The Sun Life Financial group of companies provide a wide range of savings, retirement, pension, and life and health insurance products and services to individuals and corporate customers in Canada, the United States, the United Kingdom, Hong Kong, the Philippines, Japan, Indonesia, India, Bermuda and Chile. Sun Life Financial of Canada Services of Canada Inc. trades on the Toronto (TSE), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol 'SLC', and on the London Stock Exchange (LSE) under the ticker symbol 'SFC'. NOTE TO EDITORS: All figures shown in Canadian dollars. Media contacts: Audrey Gouskos Francine Cleroux (416) 204-8155 (514) 866-2561 Investor Relations contact: Thomas Rice (416) 204-8163 Web site: www.sunlife.com SUN LIFE FINANCIAL SERVICES OF CANADA INC. COMPARATIVE HIGHLIGHTS - 2000 VS. 1999 (in millions of Canadian dollars) For three months For nine months ended Sept. 30 ended Sept. 30 2000 1999 Change 2000 1999 Change % % $ $ $ $ Revenue Premium Income 2,452 2,034 21 6,824 6,002 14 Net Investment Income 929 950 (2) 2,884 2,959 (3) Fee Income 868 672 29 2,462 1,909 29 Total Revenue 4,249 3,656 16 12,170 10,870 12 Net Income from Continuing 202 169 20 592 258 129 Operations Income (Loss) from Discontinued Operations, Net of Taxes - 1 - (38) Total Net Income 202 170 19 592 220 169 Less Participating (1) 16 11 65 Policyholders' Income (Loss)(1) 1999 Adjustments(2) - (7) - 340 Shareholders' Net Income(3) 203 147 38 581 495 17 Earnings Per Share(4) 0.48 0.38 26 1.40 1.24 13 Average number of shares 422 400 414 400 outstanding (millions)(5) Return on Equity(4) 12.8% 10.1% 12.7% 11.4% Gross Sales and Deposits Mutual Funds 11,158 8,426 32 35,052 30,346 16 Managed Funds 6,742 2,555 164 18,388 10,816 70 Segregated Funds 2,062 989 108 5,449 3,142 73 As at Sept. 30 As at Dec. 31 2000 1999 Change 1999 $ $ % $ Assets Under Management General Funds 54,564 54,730 - 54,751 Segregated Funds 50,198 39,742 26 46,014 Other Assets Under Management Mutual Funds 176,999 130,817 35 152,807 Managed Funds and Other 63,068 39,323 61 47,731 Total Assets Under Management 344,829 264,612 30 301,303 Equity Participating Policyholders' 80 - - Equity Shareholders' Equity 6,442 - - Policyholders' Surplus - 6,022 5,878 6,522 6,022 5,878 MCCSR (%) 290 271 262 Notes: (1) Represent net income (loss) attributable to participating policyholders. Amounts for the periods prior to Q2 2000 are on a pro forma basis assuming the Company had become public on January 1, 1999. (2) Represent adjustments for provisions for UK pension business ($326 million for the nine months) and results from discontinued operations ($1 million earnings for Q3 and $38 million losses for the nine months), less gains on sales of MFS shares ($6 million for Q3 and $24 million for the nine months). (3) Periods prior to Q2 2000 are on an adjusted pro forma basis as described in Notes 1 and 2. (4) Based on shareholders' net income. Periods prior to Q2 2000 are on an adjusted pro forma basis as described in Notes 1 and 2. (5) Periods prior to Q2 2000 reflect the pro forma number of shares. CONSOLIDATED INTERIM FINANCIAL STATEMENTS Sun Life Financial Services of Canada Inc. Consolidated Statement of Operations (unaudited, in millions of Canadian dollars, except for per share amounts) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 2000 1999 2000 1999 REVENUE Premium income: Life insurance $ 789 $ 787 $ 2,518 $ 2,461 Health insurance 344 312 977 888 Annuities 1,319 935 3,329 2,653 ------------------------------------------------- 2,452 2,034 6,824 6,002 Net investment income 929 950 2,884 2,959 Fee income 868 672 2,462 1,909 ------------------------------------------------- 4,249 3,656 12,170 10,870 POLICY BENEFITS AND EXPENSES Payments to policyholders, beneficiaries and depositors: Death and disability benefits 246 243 808 754 Maturities and surrenders 492 512 1,643 2,167 Annuity payments 247 230 714 682 Interest on claims and deposits 57 79 181 240 Experience rating refunds 10 6 15 46 Health benefits 260 249 783 721 Policyholder dividends 185 194 587 599 ------------------------------------------------- 1,497 1,513 4,731 5,209 Net transfers to segregated funds 586 673 1,875 1,638 Increase in actuarial liabilities 847 264 1,639 819 Commissions 323 306 983 845 Operating expenses 610 555 1,789 1,637 Premium and investment income taxes 24 21 84 66 Interest on borrowings 19 21 64 64 Cumulative capital securities dividends 18 19 56 57 3,924 3,372 11,221 10,335 OPERATING INCOME BEFORE INCOME TAXES 325 284 949 535 Income taxes 121 113 351 270 NET OPERATING INCOME 204 171 598 265 Goodwill amortization 2 2 6 7 NET INCOME FROM CONTINUING OPERATIONS 202 169 592 258 Income (loss) for discontinued operations, net of income taxes (Note 6) - 1 - (38) TOTAL NET INCOME 202 170 592 220 Less: Net income from mutual operations (prior to demutualization) - 170 179 220 Participating policyholders' net income (loss) (after demutualization) (1) - (5) - SHAREHOLDERS' NET INCOME (AFTER DEMUTUALIZATION) $ 203 $ - $ 418 $ - Basic earnings per share (Note 3) $0.48 $0.99* Adjusted earnings per share (Note 3) $1.40** * Covers the period from March 22 to September 30, 2000. ** Adjusted as if demutualization occurred on January 1, 2000. Condensed Consolidated Balance Sheet (unaudited, in millions of Canadian dollars) AS AT SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30 2000 1999 1999 ASSETS Bonds $ 26,416 $ 25,545 $ 25,515 Mortgages 10,148 11,477 12,006 Stocks 4,820 4,689 4,611 Real estate 2,264 2,403 2,429 Policy loans 1,255 1,238 1,238 Cash, cash equivalents and short-term securities 3,674 3,443 2,973 Other invested assets 1,130 1,191 1,201 ------------------------------------- Invested assets 49,707 49,986 49,973 ------------------------------------- Other assets 4,857 4,765 4,757 ------------------------------------- Total general fund assets $ 54,564 $ 54,751 $ 54,730 ------------------------------------- Segregated funds net assets $ 50,198 $ 46,014 $ 39,742 LIABILITIES AND EQUITY Actuarial liabilities $ 33,579 $ 32,370 $ 32,485 Amounts on deposit 3,822 5,260 5,546 Other policy liabilities 1,643 1,925 1,711 Borrowed funds 53 701 258 Deferred net realized gains 3,505 3,356 3,395 Other liabilities 3,791 3,657 3,691 ------------------------------------ Total general fund liabilities 46,393 47,269 47,086 Subordinated debt 749 734 740 Cumulative capital securities of a subsidiary 900 870 882 Equity Participating policyholders' account 80 - - Shareholders' equity (Note 2) 6,442 - - Surplus - 5,878 6,022 Total equity 6,522 5,878 6,022 Total general fund liabilities and equity $ 54,564 $ 54,751 $ 54,730 Segregated funds contract liabilities $ 50,198 $ 46,014 $ 39,742 Consolidated Statement of Equity (unaudited, in millions of Canadian dollars) FOR THE NINE MONTHS ENDED PARTICIPATING SHARE- SURPLUS POLICYHOLDERS HOLDERS SEPTEMBER SEPTEMBER 30, 2000 30 1999 COMMON STOCK Balance, beginning of period $ - $ - $ - $ - $ - New common shares issued (Note 2) - - 844 844 - Commissions and offering costs, net of tax (Note 2) - - (49) (49) - Balance, end of period - - 795 795 - OPERATING RETAINED EARNINGS Balance, beginning of period 5,489 - - 5,489 5,325 Demutualization costs, net of tax (Note 2) (114) - - (114) - Net income as a mutual company 179 - - 179 220 Balance as at demutualization 5,554 - - 5,554 5,545 Transfers to shareholders' equity (5,353) - 5,353 - - Transfers to participating policy- holders' account - 84 (84) - - Cash distribution to policyholders at demutualization (201) - (375) (576) - Net income (loss) as a stock company - (5) 418 413 - Balance, end of period - 79 5,312 5,391 5,545 CURRENCY TRANSLATION ACCOUNT Balance, beginning of period 389 - - 389 756 Changes for the period (prior to demutualization) (20) - - (20) (279) Transfer to shareholders' equity on demutualization (369) - 369 - - Changes for the period (after demutualization) - 1 (34) (33) - Balance, end of period - 1 335 336 477 Total retained earnings - 80 5,647 5,727 6,022 Total equity $ - $ 80 $6,442 $ 6,522 $6,022 Condensed Consolidated Statement of Cash Flows (unaudited, in millions of Canadian dollars) FOR THE NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2000 1999 CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income from continuing operations $ 592 $ 258 New mutual fund business acquisition costs capitalized (322) (348) Adjustments for items not affecting cash 1,829 1,318 Net cash provided by operating activities 2,099 1,228 CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES Borrowed funds (642) (25) Payments to certain participating policyholders and underwriters at demutualization (Note 2) (658) - Issuance of common shares (Note 2) 844 - ------------------------- (456) (25) CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Investments (1,901) (1,338) Dispositions 160 51 Acquisitions - (43) ------------------------ (1,741) (1,330) Net cash provided by discontinued operations 7 68 Changes due to fluctuations in the exchange rates 34 (90) Increase (decrease) in cash and cash equivalents (57) (149) Cash and cash equivalents, beginning of period 1,998 1,465 Cash and cash equivalents end of period 1,941 1,316 Short-term securities, end of period 1,733 1,657 Cash, cash equivalents and short-term securities, end of period $3,674 $ 2,973 Condensed Consolidated Statement of Changes in Segregated Funds Net Assets (unaudited, in millions of Canadian dollars) FOR THE NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2000 1999 ADDITIONS TO SEGREGATED FUNDS Deposits $ 5,448 $ 3,142 Net transfers from general funds 1,875 1,638 Net realized and unrealized gains 969 724 Other investment income 966 933 ------------------------- 9,258 6,437 DEDUCTIONS FROM SEGREGATED FUNDS Payments to policyholders and their beneficiaries 4,666 3,693 Management fees 390 328 Taxes and other expenses 37 61 Effect of changes in currency exchange rates (19) 1,826 ------------------------- 5,074 5,908 Net additions to segregated funds for the period 4,184 529 Segregated funds net assets, beginning of period 46,014 39,213 Segregated funds net assets, end of period $ 50,198 $ 39,742 Condensed Consolidated Statement of Segregated Funds Net Assets (unaudited, in millions of Canadian dollars) AS AT SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30 2000 1999 1999 ASSETS Invested assets $ 51,214 $ 46,882 $ 40,591 Other assets 370 244 479 ------------------------------------ 51,584 47,126 41,070 LIABILITIES 1,386 1,112 1,328 Net assets applicable to segregated funds policyholders $ 50,198 $ 46,014 $ 39,742 Condensed Notes to the Interim Consolidated Financial Statements (unaudited, in millions of Canadian dollars, except for per share amounts) 1. BASIS OF PRESENTATION Sun Life Financial Services of Canada Inc. and its subsidiaries are collectively referred to as 'Sun Life Financial' or 'the Company'. Sun Life Financial prepares its Consolidated Financial Statements according to Canadian generally accepted accounting principles (GAAP) including the requirements of the Office of the Superintendent of Financial Institutions Canada. For financial statement purposes, the assets, liabilities, surplus and results of operations of Sun Life Assurance Company of Canada (Sun Life Assurance) have been presented in the consolidated statements of Sun Life Financial on a continuity of interest basis as a continuation of the historical operations of Sun Life Assurance. These interim Consolidated Financial Statements follow the same accounting policies and methods of computation as the annual 1999 Consolidated Financial Statements, with the exception of the change in accounting for Employee Future Benefits as described in Note 7. 2. DEMUTUALIZATION Sun Life Assurance was organized as a mutual life insurance company until March 22, 2000. On that date, Sun Life Assurance converted to a stock life insurance company with common shares following the approvals of its plan to demutualize by policyholders and the Minister of Finance (Canada). Sun Life Financial was incorporated on August 5, 1999 under the Insurance Companies Act of Canada and on March 22, 2000, became an insurance holding company owning all of the outstanding shares of Sun Life Assurance. To effect the conversion, Sun Life Financial issued a total of 400 million common shares, of which 46 million common shares were issued to underwriters at $12.50 per share and 97 million common shares were sold in a secondary offering on behalf of certain eligible participating policyholders outside Canada who elected, or were otherwise required, to sell their common shares under the terms of demutualization. The remaining 257 million common shares were issued to certain participating policyholders. Proceeds from the shares issued to the underwriters amounted to $576 and were used to fund payments to certain participating policyholders. External costs in respect of demutualization of $114 after tax were treated as a capital transaction and were deducted from the surplus of Sun Life Assurance. All underwriting commissions and offering costs of issuing shares of $43 after tax were treated as a capital transaction and deducted from the share capital of Sun Life Financial. In connection with the initial public offering, the Company granted the underwriters over-allotment options to purchase up to 22 million common shares from treasury at a price of $12.50 per share. The over-allotment options were exercisable for a period of 30 days after the closing of the offering. These options were fully exercised and the shares were issued on April 4, 2000 for total proceeds of $268, less underwriting costs of $6 after tax. The proceeds are being used for general corporate purposes. 3. EARNINGS PER SHARE At demutualization, the Company issued common shares to certain eligible participating policyholders and underwriters as described above. BASIC EARNINGS PER SHARE For the period from For the period after demutualization July 1 to September 30, March 22 to September 30, 2000 2000 Shareholders' net income after demutualization $203 $418 Weighted average number of shares outstanding 422 million shares 420 million shares Basic earnings per share $0.48 per share $0.99 per share ADJUSTED EARNINGS PER SHARE Adjusted earnings per share is calculated as if demutualization occurred and the offerings closed on January 1, 2000. For the period from January 1 to September 30, 2000 Total net income for the period $592 Add: Net loss attributed to post-demutualization participating policyholders 5 Less: Adjusted net income attributed to pre-demutualization participating policyholders(1) (16) Adjusted net income attributed to shareholders $581 Weighted average number of shares outstanding 414 million shares Adjusted earnings per share $1.40 per share (1) After demutualization, net experience gains arising on pre-demutualization participating policies are not attributed to shareholders. 4. NORMAL COURSE ISSUER BID On May 11, 2000, the Company announced that the Board of Directors had authorized the purchase of up to 21 million common shares (Shares), representing 5% of the Shares issued and outstanding at that time. As at September 30, 2000, the Company had 422 million Shares issued and outstanding. Any purchases made under the normal course issuer bid program will be in accordance with the rules of The Toronto Stock Exchange (Exchange). The normal course issuer bid program covers the period from May 15, 2000 to May 14, 2001, unless the maximum number of Shares is purchased before May 14, 2001. Regulatory approval for the normal course issuer bid program was received on May 16, 2000. Transactions will be executed on the Exchange at the prevailing market price in amounts and times determined by the Company. The Company will make no purchases of Shares other than open-market purchases. Any Shares purchased as part of the normal course issuer bid program will be cancelled. 5. SEGMENTED INFORMATION The Company's reportable segments reflect the Company's management structure and internal financial reporting. Each of these segments has its own management. All of these segments operate in the financial services industry. They derive their revenues principally from wealth management operations (mutual funds, investment management, annuities, trust operations and banking) and protection services (life and health insurance). Corporate and other represents amounts not attributed to wealth management and protection. It primarily includes investments of a corporate nature and earnings on capital not attributed to the strategic business units. Other operations include those operations for which management responsibility resides in head office. As the Company's reinsurance operations are treated as a discontinued operation, net operating income does not include these results. However, the Company's reinsurance operations are included in other operations' assets. Net operating income in this category is shown net of certain expenses borne centrally. Transactions occurring between segments consist primarily of internal financing agreements. Inter-segment transactions are measured at market values prevailing when the arrangements were negotiated. Inter-segment revenue consists of interest of $107 in 2000 ($59 in 1999) and fee income of $28 in 2000 ($22 in 1999). RESULTS BY SEGMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 United States United Consolidation Canada Sun Life M.F.S. Kingdom Asia Other Adjustments Total REVENUE Wealth management $ 1,152 $ 3,294 $ 1,768 $ 655 $ - $ 7 $ (28) $ 6,848 Protection 1,849 1,939 - 1,103 298 11 - 5,200 Corporate and other 18 68 - (3) - 146 (107) 122 $ 3,019 $ 5,301 $ 1,768 $ 1,755 $ 298 $ 164 $ (135) $12,170 NET OPERATING INCOME (LOSS) Wealth management $ 67 $ 58 $ 196 $ 86 $ (2) $ 6 $ (23) $ 388 Protection 58 67 - 45 23 2 - 195 Corporate and other 13 61 - (48) - (34) 23 15 $ 138 $ 186 $ 196 $ 83 $ 21 $(26) $ - $ 598 ASSETS General fund assets $17,440 $17,222 $ 1,708 $13,534 $1,467 $3,515 $(322) $54,564 Segregated funds net assets $ 9,609 $28,790 $ - $11,799 $ - $ - $ - $50,198 Other assets under Management $25,154 $1,348 $237,995 $ 3,675 $ 7 $ - $(28,112) $240,067 RESULTS BY SEGMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 United States United Consolidation Canada Sun Life M.F.S. Kingdom Asia Other Adjustments Total REVENUE Wealth management $ 1,121 $ 2,530 $ 1,324 $ 802 $ - $ 5 $ (22) $ 5,760 Protection 1,709 1,822 - 1,128 295 3 - 4,947 Corporate and other 23 49 - 18 - 132 (59) 163 $ 2,853 $ 4,401 $ 1,324 $ 1,948 $ 285 $ 140 $ (81) $10,870 NET OPERATING INCOME (LOSS) Wealth management $ 65 $ 51 $ 131 $ (268) $ (2) $ 5 $ (18) $ (36) Protection 80 95 - 34 42 1 - 252 Corporate and other 15 15 - 29 - (28) 18 49 $ 160 $ 161 $ 131 $ (205) $ 40 $ (22) $ - $ 265 ASSETS General fund assets $19,092 $ 16,550 $ 1,526 $14,118 $1,360 &2,675 $ (591) $54,730 Segregated funds net assets $ 6,862 $ 20,302 $ - $12,578 $ - $ - $ - $39,742 Other assets under Management$19,414 $ 1,853 $165,860 $3,489 $ - $ - $(20,476) $170,140 6. DISCONTINUED OPERATIONS The Company adopted a formal plan of disposal for its reinsurance operations on December 15, 1999. On April 10, 2000, the transaction to sell the life retrocession and financial reinsurance lines of its reinsurance business closed after receiving all of the necessary regulatory approvals. The portion of the reinsurance business which is not included in the sale, primarily the accident and health reinsurance business, has been discontinued as the Company has stopped writing such business and is closing its existing block of business. Certain of the arrangements in the business remaining with the Company are subject to litigation or arbitration. As such, the final liabilities of the Company under these arrangements are subject to measurement uncertainty, but this is not expected to have a material adverse effect on the consolidated financial position of the Company. There is no net impact on net income from discontinued operations during the current period ($38 loss in the first nine months of 1999). In the quarter ended December 31, 1999, the Company included in net income the estimated net loss from discontinued operations after December 15, 1999 of $150 after tax. This loss consisted of the estimated net loss from discontinued operations of $229, net of tax of $121, and the estimated gain on the sale of its life retrocession and financial reinsurance lines of $79, net of tax of $43, based on proceeds of $171. The actual gain on the sale's closing was $79, net of tax of $43. As part of the sale transaction, sale proceeds of $171 were received and balance sheet assets of $535 and liabilities of $499 were disposed of during the second quarter. Included in the estimated net loss from discontinued operations established in the fourth quarter of 1999 of $229, net of tax of $121, were the provisions established in connection with the Unicover Managers, Inc. business which are further described in Note 9. The components of the impact on net income as well as the financial position of the discontinued operations are as follows: FOR THE NINE MONTHS ENDED AS AT SEPTEMBER 30, 2000 1999 SEPTEMBER 30, 2000 1999 REVENUE $294 $675 ASSETS EXPENSES 290 734 Invested assets $ 715 $ 965 Income (loss) for Other assets 389 476 discontinued Total assets $ 1,104 $ 1,441 operations before income taxes 4 (59) LIABILITIES Income taxes expense Actuarial liabilities and (benefit) 4 (21) other policy Income (loss) for liabilities $ 772 $ 1,171 discontinued Other liabilities 332 270 operations, Total liabilities $ 1,104 $ 1,441 net of income taxes $ - $ (38) 7. CHANGE IN ACCOUNTING POLICY The Company adopted on a prospective basis Employee Future Benefits, section 3461 of the Canadian Institute of Chartered Accountants Handbook, effective January 1, 2000. The impact of this change in accounting policy is not material to these Consolidated Financial Statements. 8. DISPOSALS Effective March 1, 2000, the Company sold all of the common shares of Sun Life Trust Company (SLT), a deposit taking, mortgage lending and trust services company with assets of $2 billion. Proceeds of $160 from the sale recovered SLT's net carrying value. On April 10, 2000, the sale of the reinsurance business closed as described in Note 6. 9. PROVISIONS FOR CERTAIN CONTINGENCIES UNICOVER In 1997, the Company entered into an arrangement to participate in the reinsurance of a risk-sharing pool and related facilities, managed by Unicover Managers, Inc. (Unicover), which provided reinsurance for U.S. workers' compensation benefits. During 1998, the premium attributable to the underlying workers' compensation policies sold and then partially or wholly reinsured by Unicover materially exceeded expectations. It was expected in 1999 that claims attributable to the entire program could be substantial. Consequently, the Company has undertaken an extensive review of the Unicover program and the Company's reinsurances. The Company has delivered a notice of arbitration to all participants in the Unicover pool and related facilities seeking rescission of these contracts or damages. If the remedy of rescission were granted in this case, it would have the effect of annulling or voiding the Company's contracts with Unicover. It is possible that the arbitration proceedings will be lengthy and the outcome of those proceedings not known for quite some time. Based on the information known to it at this time, the Company believes that it has strong grounds for rescission. The Company has entered into settlements which together have significantly reduced the Company's exposure to losses from the Unicover business. On January 7, 2000 a settlement agreement was made with Reliance Insurance Company and Reliance Group Holdings, Inc. (Reliance) with respect to a segment of the Unicover business. As a result of this settlement, the arbitration against Reliance for rescission of agreements related to this segment of the Unicover business will not proceed. On March 27, 2000 the Company settled the Company's exposure in another segment of the Unicover business by entering into agreements with Reliance Insurance Company, The Lincoln National Life Insurance Company and Lincoln National Health and Casualty Insurance Company. Certain of the companies providing reinsurance protection to the Company have initiated proceedings to avoid their retrocessional reinsurance. These proceedings are all in their preliminary stages. 9.PROVISIONS FOR CERTAIN CONTINGENCIES (Cont'd) UNICOVER (Cont'd) The Company established provisions at a cost of $150 after tax during 1999 in connection with the Unicover business based on information known to it at the time. The financial terms of the above settlements are consistent with these provisions established in 1999 and no additional provisions were established during the first nine months of 2000. LEGAL PROCEEDINGS Sun Life Financial and its subsidiaries are engaged in litigation arising in the ordinary course of business. None of this litigation is expected to have a material adverse effect on the consolidated financial position of the Company. PROVISIONS IN THE UNITED KINGDOM In the United Kingdom, the life insurance industry is being required to compensate certain policyholders under the Financial Services Authority guidelines on sales of pension products. The compensation is for sales which occurred from 1988 to 1994. These guidelines have been significantly expanded for the second phase of required compensation, which has required the entire industry to significantly increase its provisions. The Financial Services Authority is continuing to provide more specific guidance for this compensation. The liability has been determined by the use of estimates derived from the regulatory guidance or the Company's prior experience. The Company's future experience may be different from these estimates and consequently there is still uncertainty in measuring its ultimate costs. There was no increase in the provisions for the first nine months ($354 increase in the first nine months of 1999, included in the maturities and surrenders line in the Consolidated Statement of Operations) and the total cost since inception is $1,176. During the nine months, the Company paid compensation of $67 ($114 in the first nine months of 1999), for total compensation payments since inception of $452. At September 30, 2000, the Company had provisions of $617 ($746 as at September 30, 1999) for future compensation payments and related expenses. In 1998, the Company significantly increased its actuarial liabilities in connection with certain annuities with minimum annuity rates issued prior to 1994 by Confederation Life (U.K.) in the United Kingdom. At September 30, 2000, the Company included in its actuarial liabilities $439 ($459 as at September 30, 1999) for these liabilities. The Company has instituted a hedging program with the objective of limiting losses that would otherwise arise upon further declines in interest rates in the United Kingdom. This program provides a substantial, although not complete, hedge against declines in interest rates. There can be no certainty that additional liabilities will not be required in the future as a result of interest rate changes or other factors.

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Sun Life Financial Inc. Services of Canada (SFC)
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